Articles

China may experience slower economic growth in 2012

Dec 20, 2011Katherine Sweet

It is looking like a dismal economic forecast in 2012 for China, claim investment banks, economists and analysts. Economic growth is predicted to decline 7.9 percent during the next year, said the investment bank Nomura International (Hong Kong) Ltd, reported China.org.cn.

While many other investment banks envision a more optimistic figure, nearly all believe China is up for a rough economic road ahead in 2012. The Asian nation has not seen growth that poor since 1998’s financial crisis in Asia.

Xia Bin, academic adviser to the People's Bank of China, reports that China’s economy has moved from double-digit rapid expansion to a significantly lower figure. To deal with the grim economic times, Bin said the nation must employ any and all methods to increase its domestic demand.

China’s financial energy has slowed, owing to a declining property market and poor external demand, according to Zhang Zhiwei, chief China economist at Nomura International. The bank is forecasting financial growth will decline to 7.5 percent during the first quarter and 7.6 in the second.

"The sluggish growth will be clearly noticeable in the national economy as well as in people’s ordinary lives in the first quarter of next year," Zhang said to China.org.cn.

Economic experts venture that China’s central bank, the PBOC, may relax its monetary policies in the coming year in order to boost economic growth and ramp up the banking industry. The country may also slacken the reserve-requirement ratios for banks four times in 2012 and decrease interest rates in the first quarter, predicted Zhang.

Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co, has a different opinion. "The chances of a drop in interest rates soon are low," Ulrich declared.

The present interest rates, particularly for current deposits, represent negative interest rates, Ulrich noted. She believes the government may use alternative methods, such as lowering the reserve-requirement ratios, to augment liquidity.

The two economists are in agreement on one thing: New-yuan loans are sure to rise. Nomura estimates growth to 8 trillion yuan ($1.26 trillion) whereas JPMorgan is weighing in the figure will be approximately 8.2 trillion yuan.

The greatest challenge may be the quickly cooling property market, which Zhang claims has hit “a turning point.” As the property market worsens, property investment and land transactions have diminished.

In fact, 49 out of 79 major Chinese cities examined by the government have reported falling housing prices, versus only 33 in in October, according to the National Bureau of Statistics. Zhang anticipates investment will carry on decreasing during the next two quarters, affecting other industries such as steel and cement. As the housing situation worsens, these industries will struggle with huge losses and overcapacity, he maintained.

China International Capital Corp Ltd was more optimistic, predicting property investment will rise by 14.5 percent year on year during 2012. While risks may occur – such as declining land transaction and a dearth of funding – the report forecasts that reducing RRR will help the cash flow difficulties experienced by many real estate developers.